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HMRC internal manual

VAT Input Tax

HM Revenue & Customs
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Specific issues: goods and services used for business entertainment and other business purposes

HMRC will accept an apportionment of input tax incurred on indivisible supplies used both for business entertainment and for other business, non-entertainment, purposes. However, a business will need to show that the other use is genuine.

Imagine that a business provides a gala night for potential clients at a West End theatre. You might think that only the provision of food and drink was business entertainment. You might also think that the bulk of the input tax related to business promotion and so the business can claim it back. HMRC would refuse the claim.

When thinking about apportionment we ask, “What is the business using the relevant goods or services for other than to provide entertainment?” HMRC would not allow apportionment where the claimed other business use is something intangible such as business promotion or marketing. This is because all business entertainment is by way of marketing or promotion. The two are wholly bound up and are not separable.

HMRC does allow an apportionment where the goods or services are clearly used both for business entertainment and another tangible business use. The following examples are not exhaustive:

  • hire of a hospitality suite, a specific part of which is given over to use as an office conducting normal business;
  • services connected with sponsorship of an event which are used partly to entertain customers and partly to advertise the business to a wider audience attending or viewing the event;
  • capital goods to be used partly to make taxable supplies, such as a yacht for charter and partly for business entertainment; and
  • consumable goods used partly for business entertainment and partly for other purposes.

HMRC will consider any method of apportionment that gives a fair and reasonable result.

When a business takes customers to sporting events the VAT incurred on admission costs and any hospitality provided is subject to the business entertainment provisions. The same rules apply to the VAT on theatre, opera or night-club admissions.

If a business:

  • runs a racing car or horse at sporting events; and
  • invites business guests to attend that event

the VAT on buying the item and on its keep, repair and maintenance is subject to the business entertainment rules. See the three cases of:

  • P R Promotions;
  • British Car Auctions; and
  • Paine Leisure Products Ltd

at VIT64300.

HMRC will look closely at claims where a business thinks that the item is used not to entertain business guests but to advertise the business. If we think that the item is being used for both business entertainment and another tangible business purpose we will ask the business to apportion the tax it has paid on it.